Calculations and backup should be completed and submitted in one Excel file. Word documents or other file types will not be accepted. Use proper Contribution Margin Income Statement formatting (see below). Each question refers to the same initial data. Treat each question separately. Ignore income taxes. Assume no beginning or ending inventories. Calculations and backup should be completed and submitted in Excel. Leave any formulas used in the Excel cells (do not hard code or type in results); this allows for partial credit if possible. Analysis can either be typed into cells in Excel (formatted to be easily legible) or typed into a text box in Excel. Students are expected to work independently.

Contribution Margin format example:

Vroom-Vroom manufactures ride-on cars for toddlers and young children. They have a fiscal year of January through December. When they were preparing their budget, they couldn't decide if a static or flexible budget would be best for their company - so they did both. It is now March, and their accounting department is catching up on analyzing variances for both January and February. Vroom-Vroom would like to use this opportunity to determine whether they would be better off with a static or flexible budget going forward. They want to choose which budget and related variance analysis provides them the best information for decision-making.

Here is the data that Vroom-Vroom used for their budgets:

Vroom-Vroom estimated sales/production will be between 100,000 and 300,000 cars per month. Their static budget is based on 200,000 cars sold per month. Assume that all units produced in a month are also sold in that month. Vroom-Vroom's unit of production/sale is a car (unit/each).

Here are the Actual Results in January and February:

Question 1:Prepare a static budget in Excel for Vroom-Vroom based on 200,000 units produced. (36 points)

a)Show the static budget for January in Contribution Margin Income Statement format.

b)Compare January's static budget to January's actual results. Specify which line items are favorable or unfavorable and how much.

c)For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for January. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.

d)Show the static budget for February in Contribution Margin Income Statement format.

e)Compare February's static budget to February's actual results. Specify which line items are favorable or unfavorable and how much.

f)For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for February. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.

Question 2:Prepare a flexible budget in Excel for Vroom-Vroom. (36 points)

g)Show the flexible budget for January in Contribution Margin Income Statement format.

h)Compare January's flexible budget to January's actual results. Specify which line items are favorable or unfavorable and how much.

i)For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for January. Provide potential explanations. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.

j)Show the flexible budget for February in Contribution Margin Income Statement format.

k)Compare February's flexible budget to February's actual results. Specify which line items are favorable or unfavorable and how much.

l)For Raw Material Costs and Packaging Costs, break out the Price and Volume Variances for February. Provide potential explanations for each one. Note: Saying that an item was above or below budget is NOT an explanation. You need to include potential (made-up) reasons.

Question 3: Analyze the differences between static and flexible budgets. (28 points)

m)What is the difference between static and flexible budgets in theory?

n)What are the differences between the static and flexible budgets for Vroom-Vroom?

o)What are the pros and cons for each - static and flexible budgets?

p)Write a letter to Vroom-Vroom's CFO. Explain the results in January and February. Provide your recommendation for either static or flexible budgets. Provide explanations and backup for your recommendation. Note: A letter to the CFO should have correct spelling and grammar, and is expected to be approximately 400 words. Thorough explanations with backup are required.